Mercantilism Essay, Research Paper

Mercantilism as a global economic policy tends to subscribe to the following premises: wealth is an essential means to power, power is essential as a means to the acquisition of wealth, wealth and power are each proper ultimate ends of national policy, and there is a long run balance of trade between these ends. Mercantilism?s belief is that that each country must protect its own interests at the expense of others thus the notion of zero-sum game. Mercantilists therefore emphasize relative power: what matters is not so much a country?s absolute amount of well-being but its position relative to rival countries. To achieve this notion government intervention by way of tariffs and quotas is essential. The new trade theory acknowledges the presence of economies of scale, which results in the market only being able to support a few firms in different industries. It relies heavily on the notion of first-movers advantage thus suggesting that a firm may dominate its industry simply because of luck. This luck, however, increases with an increase in government intervention, specifically in subsidies as seen in the airline industry. The role of government intervention in the new trade theory suggests a push back towards the mercantilism ideology. However, unlike mercantilism, the new trade theory does not directly support the need for trade barriers. It only suggests that in order to achieve first-movers advantage, it may be necessary for government to support such up and coming firms, at least until it gets it foot in the door.